The RP: State Treasurers vs. Super PACs

EXCLUSIVE: Are State Treasurers Preparing a Novel Attack on Mega-Rich Campaign Donors?

Thanks to Citizens Unitedand other recent rulings, the nation’s ultra-wealthy have a lot more latitude than they did a few years ago when it comes to pouring money into the political system. And, according to the latest campaign filings, they aren’t skimping. During February, Ken Griffin, founder of the hedge fund Citadel, and Henry Kravis, co-founder of private equity giant KKR, each gave $100,000 to the super PAC supporting Mitt Romney, while American Crossroads, the group co-founded by Karl Rove, received $500,000 from the financial services firm S.W. Childs Management Corp.

But these are just the contributions that get disclosed. Groups such as Crossroads do not need to reveal who donates to their 501(c)(4) arms, which are supposed to focus their advocacy on “issues,” not elections. (In practice, of course, they often blur that distinction to the point of meaninglessness. Crossroads’s 501(c)(4) arm, for instance, has spent hundreds of thousands of dollars on two ads attacking Barack Obama over the Solyndra fiasco.) Because the donations are anonymous, no one knows how much money is flowing from Wall Street billionaires to these entities. But everyone assumes—and it’s a pretty safe guess—that it’s a lot.

Now, under the radar, a fledgling effort to force these donors out into the open is underway. And it’s being led by a rather unlikely group of crusaders: a handful of the nation’s state treasurers.

In most states, the duties of the treasurer include a role in the oversight of pension funds for state employees. These funds invest much of their money with the country’s biggest hedge funds and private equity firms. In fact, about 30 percent of the money invested with private equity is from public pensions. And so, it has occurred to some state treasurers that they might use these funds as leverage. The idea would be to say to firms: If you want to keep managing our billions, then we want you to be more transparent in your political giving. (While the stated intent is not to limit giving, presumably some money managers would be less inclined to write big checks if disclosure were required.) “They’re sending a message,” says Shelley Alpern of Trillium Asset Management, a “socially responsible” investment fund that pushes for transparency in political giving. “The pension funds have multiple billions of dollars to choose how they want to invest, and they can probably find hedge fund managers who aren’t involved in the political process the same way some of their current money managers are.”

So far, the loosely coordinated group of states considering this approach, according to several people familiar with the effort, includes California, Illinois, Massachusetts, North Carolina, and Rhode Island. Discussions appear to be most advanced in California, where the state’s two public pension funds have $53 billion invested with private equity and $5 billion with hedge funds. The tactic was a topic of discussion at a recent meeting of California pension officials in Los Angeles, and state staffers are now studying options for its implementation. “I support it,” California Treasurer Bill Lockyer, a Democrat, told me. “I’m among those concerned about the escalation of megabucks, private megabucks, in presidential and other campaigns. It’s alarming to see what’s happening.”